Friday, April 4, 2014

Enforcement Actions: Week in Review

According to the complaint (PDF), Walter D. Wagner and Alexander J. Osborn traded on insider information they learned from investment banker, John W. Femenia, "about the impending acquisition of The Shaw Group Inc." Wagner has agreed to a settle the charges by "disgorging his ill-gotten gains plus interest, with any additional financial penalty to be determined by the court at a later date." Criminal charges have also been announced against Wagner. Litigation against Osbern remains pending. Femenia was previously charged in a related insider trading case and has been barred from the securities industry.

The court approved a settlement that requires Rodrigo Terpins and Michel Terpins to pay "nearly $5 million to resolve charges that they were behind suspicious trading in call options of H.J. Heinz Company the day before the company publicly announced its acquisition." The final judgments also permanently enjoin them future violations of the securities laws.

Final judgments were entered against John Kinnucan and his expert consulting firm, Broadband Research Corporation for their alleged involvement in insider trading "involving expert networks." The final judgments permanently enjoin them from future violations of the securities laws, order them to pay over $6.5 million combined in disgorgement, prejudgment interest, and civil penalties.

Former Head of Investment Advisory Firm Sentenced to 63 Months Imprisonment for Conspiracy to Commit Wire Fraud and Making a False Statement to SEC Staff, April 2, 2014, (Litigation Release No. 22962)

This week Fredrick D. Scott was sentenced to 63 months imprisonment, "to be followed by three years of supervised release, and ordered...to pay $1,388,190 in restitution" for allegedly using his "status as a registered investment adviser to bolster his credibility in fraudulently offering too-good-to-be-true investment opportunities." Scott had formerly pled guilty in the case United States v. Scott to "charges of conspiracy to commit wire fraud and making a false statement to SEC staff."

A final judgment has been entered against Alan Sheinwald and his investor relations firm Alliance Advisors LLC for allegedly acting "as unregistered brokers in connection with securities offerings for two companies, including China Yingxia International, Inc." The defendants have consented to the final judgment that permanently enjoins them from future violations of the securities laws, bars them from the securities industry with the right to apply for reentry after two years, bars them from participating in any offering of penny stock, and orders them to pay over $245,000 in disgorgement, prejudgment interest, and civil penalties.

A final judgment was entered against Sheldon Simon for allegedly violating antifraud provisions of the securities laws. The judgment permanently enjoins Simon from future violations of the securities laws and orders him to pay a civil penalty of $3,000. The judge "dismissed the Commission's claims against Simon for disgorgement and prejudgment interest, based on the parallel federal criminal case, where Simon was convicted of wire fraud and sentenced to two years of supervised release, and an order of forfeiture."

District Court Enters Judgment On the Pleadings Against Defendant Stephen F. Molinari, Final Judgment Against Defendant Nationwide Pharmassist Corp., and Order Dismissing Case, April 1, 2014, (Litigation Release No. 22959)

Final judgments were entered against Stephen F. Molinari and Nationwide Pharmassist Corp for their alleged violations of the antifraud provisions of the securities laws. The judgments permanently enjoin them from future violations, impose an officer and director bar and penny stock bar against Molinari, and order Nationwide to pay a $20,000 civil penalty. The Commission's claims against Molinari for disgorgement, prejudgment interest, and a civil penalty were dismissed "based on the parallel criminal case, where Molinari was convicted of mail fraud and sentenced to six months in prison, three years of supervised release, and restitution of $40,000."

Ching Hwa Chen has been charged with trading on insider information "ahead of Informatica Corporation's announcement that it would miss its quarterly earnings target based on confidential information he gleaned from his wife, a tax director at Informatica. His wife had "previously advised Chen not to trade in Informatica securities under any circumstances." Chen realized nearly $140,000 in illicit profits. Chen has agreed to a final judgment that permanently enjoins him from future violations and orders him to pay almost $280,000 in disgorgement, prejudgment interest, and civil penalties.

The SEC charged Tyrone Hawk "with insider trading ahead of Oracle Corporation's acquisition of Acme Packet Inc. based on confidential details he learned from his wife, a finance manager at Oracle." Hawk has agreed to a judgment that permanently enjoins him from future violations of the securities laws and orders him to pay over $305,000 in disgorgement, prejudgment interest, and additional penalties.

Final judgments were entered against Adam Klein, William Keeler, and Jeffrey Richardson for their alleged role in "a massive broker bribery scheme involving the stock of nine public companies, including Syndicated Food Service International, Inc." The judgment permanently enjoins them from future violations, orders them to pay over $700,000 combined in disgorgement and penalties, and imposes a penny stock bar and officer and director bar against Klein.

Judgments were entered against Jeffrey L. Schultz and Redfin Network, Inc. for their alleged violations of the antifraud provisions of the securities laws. The judgments permanently enjoin them from future violations, order Redfin to pay almost $20,000 in disgorgement and prejudgment interest, and impose a penny stock bar and officer and director bar against Schultz. The SEC's claims for disgorgement, prejudgment interest, and a civil penalty were dismissed "based on the parallel federal criminal case, where Schultz was convicted of securities fraud and sentenced to six months in prison, three years of supervised release, and an order of forfeiture."

The SEC has charged Jason A. Halek and Patrick J. Booths of "fraudulently conduct[ing] unregistered securities offerings of working interests in oil and gas projects that were owned and operated by Halek’s company, Halek Energy, LLC." Joshua D. Spivey and Steven J. Little offered these projects "through their separately incorporated companies." The SEC has charged the defendants with violations various provistions of the securities laws and seeks civil penalties, disgorgement, and prejudgment interest. Booths, Spivey, and Little have agreed to be barred from the securities industry as well as barred from participating in the offering of a penny stock and to injunctions against future violations.

The SEC has charged three entities collectively operating under the business names WCM and WCM777 with "rais[ing] more than $65 million since March 2013 by falsely promising tens of thousands of investors that the return on investment in the cloud services venture would be 100 percent or more in 100 days." The entities, which are based "in California and Hong Kong and controlled by 'Phil' Ming Xu," have not used funds as promised but instead have "used investor funds to make Ponzi payments of purported investment returns to some investors...[and] to purchase golf courses and other U.S.-based properties among other unauthorized expenditures." The court has frozen the assets of the businesses, appointed a temporary receiver over the assets, and granted a request for an "order prohibiting the destruction of documents and requiring the defendants to provide accountings." A hearing is scheduled for April 10, 2014.

The CFTC has charged MF Global Inc. with unlawfully "using customer segregated funds to support its own proprietary operations and the operations of its affiliates." The CFTC's consent Order "imposed a $100 million civil monetary penalty on MF Global, to be paid after MF Global has fully paid customers and certain other creditors entitled to priority under bankruptcy law."

Federal Court Orders Two Florida Men and Their Companies to Pay More than $3.3 Million in Restitution and Penalties to Settle Charges Stemming from Role in Illegal, Off-Exchange Precious Metals Transactions, March 31, 2014, (CFTC Press Release No. 6903-14)

Permanent injunction Orders were entered against John King and his company, Newbridge Alliance, Inc. (PDF) and David A. Moore and his company United States Capital Trust, LLC (PDF) for their role "in a multi-million dollar precious metals scheme orchestrated by Hunter Wise Commodities, LLC and related companies." The Orders require the defendants to pay over $3.3 million combined in restitution and civil penalties. "The Orders also impose permanent solicitation, trading and registration bans against King, Newbridge, Moore, and USCT, and prohibit them from further violations of the Commodity Exchange Act and CFTC regulations, as charged."

A final judgment Order (PDF) was entered against Ward Onsa and his company, New Century Investment Management LLC "imposing a civil monetary penalty of almost $6 million against them," imposing permanent trading and registration bans on them, and "prohibiting them from violating the anti-fraud provisions of the Commodity Exchange Act." The judgment stems from CFTC charges that the defendants had conducted "solicitation fraud, misappropriation, and issu[ed] false account statements to commodity pool participants while operating a commodity pool Ponzi scheme." In a related criminal case, U.S. v Ward Onsa, Onsa was sentenced to 78 months imprisonment and ordered to pay over $3.1 million in restitution to victims.

Federal Court Orders St. Augustine, Florida Couple and Their Company to Pay $5.76 Million for Defrauding Customers in Foreign Currency Scheme, March 31, 2014, (CFTC Press Release No. 6900-14)

A supplemental consent Order (PDF) was entered which requires "Gary D. Martin and Brenda K. Martin...and their company, Queen Shoals Consultants, LLC,...to jointly pay a total of $5.76 million in civil monetary penalties for defrauding customers through a retail foreign currency (forex) trading scheme." According to the CFTC, the Martins “'lured customers by claiming QSC and the Martins had a "vast background in financial services" with over 20 years of experience in financial services and a staff of experts ready to assist customers.'" However, the defendants actually "had no expertise or experience in trading forex, and all of the representations concerning trading, guaranteed profits, and profitable accounts were false." Unknown to the investors, the Martins allegedly "turned over all customer funds to Sidney S. Hanson...in return for a referral fee of up to five percent of each customer’s initial and subsequent investment." In 2009, Hanson and other defendants were charged by the CFTC "with operating a Ponzi scheme involving more than $22 million in connection with off-exchange forex trading." Hanson pled guilty to securities fraud and mail fraud in the criminal matter (United States v. Sidney Stanton Hanson)" and "was sentenced on April 1, 2011, to 22 years in prison and ordered to pay $33 million in restitution to victims of the Ponzi scheme."

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